Fiscal cliff likely to trigger filing delays for tax payers

The upcoming tax season is going to be even more unpleasant than usual. And more complicated. And maybe more costly for millions of Americans.

Most of the negotiations in Washington over the so-called fiscal cliff will affect tax rates for 2013. But as many as 25 million Americans, including thousands in the Bay Area, will see their 2012 tax bill spike if Congress allows the Alternative Minimum Tax to extend to more taxpayers.

The key tax issue in Washington is whether George W. Bush-era tax cuts should be extended, and for whom, for the 2013 tax year. But those negotiations are also likely to affect the AMT, which already applies to thousands of Bay Area workers.

The Alternative Minimum Tax was initially aimed at rich folks who found ways to avoid paying their share of taxes. But its reach grew to include millions of middle-class taxpayers, who escape it only when Congress passes a "patch" each year.

Without passage of the patch this year, the AMT is scheduled to revert to 1986 levels, which would involve an estimated 25 million U.S. taxpayers who have to file their returns by April 15.

Potential changes to the AMT would affect "a lot of middle-class taxpayers in California," said Michael Gray, a San Jose certified public accountant who has been practicing in San Jose since 1974. "An estimated one-fifth of U.S. taxpayers would be subjected to the AMT."

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Returning the AMT to 1986 levels could cost individual taxpayers, corporations, estates and trusts "a few thousand dollars to many thousands of dollars," said Chuck Putney of Putney Klein Associates in Walnut Creek. "The AMT is caught up in this fiscal cliff deadline. In essence, it's part of these fiscal cliff discussions."

Because of congressional inaction on the AMT and several other end-of-the-year tax extensions, the IRS already is telling tax preparers that many of its online forms won't be available until March.

Millions of taxpayers will need to request extensions on their income tax deadlines. That will delay tax payments to the state and federal governments -- and delay millions of dollars in refunds to taxpayers.

"One way or another, that money will be sitting in the Treasury rather than doing work for the United States economy," Gray said.

He's been telling his clients this year "that my crystal ball is broken. We should all go to Washington and bring our torches and tar and feathers and say, 'Clean up this mess.' "

In 42 years of preparing tax returns, Putney said, he has never faced such an uncertain tax season.

"We've had mixed-up years in the past but this year it's unprecedented," Putney said. "It's nerve wracking and annoying and frustrating."

While Bay Area tax preparers can do little to resolve the confusion surrounding federal filings, they're reminding clients that the Proposition 30 tax increase that California voters approved in November to support public education is retroactive for the entire year, which could result in higher, individual state tax payments.

"I don't think most people were aware of that because that kind of snuck up on people in the heat of an election where everyone was focused on Obama versus Romney," said Peter B. Diaz, a Redwood City certified public accountant who has been warning his clients about the retroactive nature of the Proposition 30 tax.

Arthur Carter of San Jose normally receives state and federal tax refunds totaling about $1,700 and will be upset if his next refund is any lower. He's telling all of his friends to join him in requesting extensions on filing their taxes because of the confusion in Washington.

"It's frustrating because you don't know what's going on," he said.

Daniel Martinez of San Jose supports his wife, their 2-year-old son and 3-month-old daughter with his job as a cook at a downtown Mexican restaurant and is depending on a refund similar to the $2,500 that he got last year.

Any changes to Martinez's tax rate that would lower his tax refund "would mess me up pretty bad," he said.

With all of the uncertainty over her 2012 return and the unknown changes ahead for 2013, Catherine McBain of San Jose plans to file her 2012 return as soon as she gets all of her tax documents in order.

McBain's strategy is to file as soon as possible so she can get a refund before all of the dust settles in Washington.